Friedman's Wisdom: CEOs Want to Pay Even Less Tax

In a column headlined "A Word From the Wise" (3/3/10), New York Times columnist Thomas Friedman lets us know what Intel CEO Paul Otellini thinks is wrong with the U.S. economy. And there's a certain theme that runs through his critique:

"The things that are not conducive to investments here are [corporate] taxes and capital equipment credits."… "If I build that factory in almost any other country in the world, where they have significant incentive programs, I could save $1 billion," because of all the tax breaks these governments throw in…. "The cost of operating when you look at it after tax was substantially lower."… If the government just boosted the research and development tax credit by 5 percent and lowered corporate taxes…. With the generous research and development tax credits and lower corporate taxes they receive, Intel's chief competitors in South Korea basically have "zero cost of money."…

You think maybe the CEO of Intel would like to not pay so much in taxes?

One thing is strikingly missing from Friedman's column: any discussion of how high U.S. corporate taxes actually are. On paper, the country has some of the highest corporate tax rates in the world–but as Otellini's reference to "tax breaks" suggests, what matters to business executives is how much they actually pay. And as a share of the total economy, U.S. corporate taxes are some of the lowest in the world: According to a Congressional Budget Office report (11/05), out of 31 industrialized countries, 28 have corporate taxes as a bigger share of the economy and only two have less.*

"'Something has to pay for' everything government is doing today," Otellini lectures the United States via Tom Friedman. But it shouldn't be corporate America, apparently.

*In the U.S., corporate taxes are 1.8 percent of GDP, vs. 2.9 percent in Britain and France, 3.1 percent in Japan, 3.4 percent in Canada, 5.3 percent in Australia and 8.2 percent in Norway. Germany is the one major country where corporate taxes are a smaller share of the economy, at 1.0 percent of GDP.

Extra! Magazine Editor Since 1990, Jim Naureckas has been the editor of Extra!, FAIR's monthly journal of media criticism. He is the co-author of The Way Things Aren't: Rush Limbaugh's Reign of Error, and co-editor of The FAIR Reader: An Extra! Review of Press and Politics in the '90s. He is also the co-manager of FAIR's website. He has worked as an investigative reporter for the newspaper In These Times, where he covered the Iran-Contra scandal, and was managing editor of the Washington Report on the Hemisphere, a newsletter on Latin America. Jim was born in Libertyville, Illinois, in 1964, and graduated from Stanford University in 1985 with a bachelor's degree in political science. Since 1997 he has been married to Janine Jackson, FAIR's program director. You can follow Jim on Twitter at @JNaureckas.

A minor point: the CEO who says that "'Something has to pay for' everything government is doing today actually is implying that it will be corporate America who will pay the taxes for American government's future operation. He is, though, making the case for a more business-friendly environment, which includes tax cuts as well as improved education.

The Corporate Greed, and blatant Anti-American attitude of this corporate jerk is astounding! He feels that, it's allright that his country carries on the way it does, yet, he shouldn't have to pay his fair share. And, to boot, he says that if he goes to another country to expand his business, at the expense of his own country and countrymen, just to save a billion dollars here or there, is ludicrous! He and all of his CEO Corporate Buddies should be forced surrender their American Citizenship or face charges of high treason!!

The McCourts, who own the Los Angeles Dodgers (so she says; he says he's the owner and she's not), jointly pocketed income totaling $108 million from 2004 through 2009, according to documents Jamie McCourt recently filed in the couple's divorce case in Los Angeles County Superior Court.

Like corporations, the wealthiest families in the U.S. pay comparatively little in federal income taxes. The New York Times published an article on February 10, 2010 citing the following.

The average amount, in millions of dollars, earned by the 400 highest-earning households in the United States in 2007, according to Internal Revenue Service data reported by Tax.com. The number is up from $263 million in the previous year, an increase of 31 percent. Each of the top-earning 400 households paid an average tax rate of 16.6 percent, the lowest since the I.R.S. began tracking the data in 1992. The top 400 earned a total of $138 billion in 2007, up from $105.3 billion a year earlier.

It's safe to assume that these billionaires owe their wealth to the millions of ordinary people who consume the products or services of the corporations from which they receive their capital gains that are taxed at a fifteen percent rate.

Take a smaller scale economy at your nearby corner market. Say you own a nice cozy neighborhood Cafe. Next door a Verizon Kiosk opens, with 1/5 of the rental space that you use – this and other similar franchises drive up rental prices. Your lease is now due, and there is a big jump in the monthly rent. You will not be able to survive with this increase. So you decide to close, because nobody will be paying $5 for cup of coffee to offset the new leasing price.

The community loses it's lifestyle – the cozy local neighborhood, the "comfort" zone. The appeal that may make this area distinct is gone. This sort of changing landscape is similar to when Wal-Mart moves into a neighborhood.

How to account for businesses that provide value for the greater good "society"? vs. businesses that obey competitive rules? I don't think Game Theory explains this situation, but would be interested if anyone could shed light on this economic model. – Thanks.